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By Ada Frank

Managing Director, Head of Wealth Planning and Advice, J.P. Morgan Wealth Management


You just had a liquidity event. Maybe you’ve sold a business, or you’ve received a large gift or inheritance. Everybody has dreams about what they’d do in this situation—buy a new home, travel, invest—but what do you do when the money shows up in your account? Here are some things to think about as you prepare a longer-term plan for your new-found wealth. While we focus in this article on business sales, the same concepts hold true for any large, somewhat unanticipated inflow of cash. No matter your situation, we encourage you to work with a professional advisor.

First steps

Make sure you have an account at an institution you trust to hold the assets you will receive from the liquidity event. Know the wire instructions to have the proceeds wired directly to the account.

Gift and estate tax planning around a liquidity event

If you are planning to make gifts to children or other beneficiaries, under some circumstances, doing so before the liquidity event and giving away a portion of your private business interest may allow you to take advantage of valuation discounts for gift tax purposes (which otherwise may not be available if you make gifts of cash post-event). Consult your estate-planning attorney, accountant and J.P. Morgan Advisor if you are interested in gift and estate tax planning around your liquidity event.

Take your time

If you have sold a business, you may have been able to live off of—and fund your family’s lifestyle from—your salary or profits from the business. Now you may have to fund those expenses from your portfolio. At the same time, you need to think about how you would like to spend your time—will you travel? Spend time with family? Take on other jobs (e.g., join one or more boards of directors, teach, etc.)?

Part of your decision about long-term investing will depend on your spending and on how much of that spending you need to fund from your portfolio or other income you may have (including employment income from a new job)—and you may not know what your spending habits in this new phase of your life will be.

The most important thing to remember is that there is no urgency to put an investment plan—or a gifting plan—in place right away. While you may miss an immediate opportunity, at least on the investment front, others will present themselves, especially when you invest for the long-term.

Although this is less true with opportunities to purchase unique assets (e.g., certain real estate or collectibles), you should not rush into anything. Believe it or not, it is our experience that clients who receive significant liquidity quickly are best off when they take some time to get used to having liquid net worth (as opposed to having a business, which is “only” paper net worth). Get used to having a significantly sized account without feeling the need to “do something.”

Gauge your risk tolerance

What is your approach to investment risk? Asset allocation can be the most significant factor in the variability of long-term performance—sometimes even more so than security selection or market timing. Your risk tolerance—and your cash needs in the short-, medium- and long-terms—will drive an appropriate mix of assets for your investment portfolio.

Know your short-term needs

Make sure you have enough cash and other short-term investments to enable you to pay tax on your proceeds (if any), to fund any pre-planned purchases (family travel, second home, etc.), or to purchase medical insurance (if you are no longer covered by your business’s insurance). There will also likely be unexpected expenses for which you haven’t budgeted—make sure you have enough in your “day-to-day” accounts to cover unforeseen circumstances.

Considering both your liquidity needs and time horizon, the figure on the right lays out investment considerations for different liquidity “buckets.”

Liquidity needs and time horizons

Group cash balances into three types based on your liquidity needs and time horizon. Day-to-day balances

0-9 Months

Cash typically used for daily needs; may be subject to unforeseen expenses

Requires preservation of principal

Same-day liquidity


Reserve liquidity

9-18 Months

Fairly static; same-day access not reached

Cash set aside for possible investments, large purchases


Investable assets

18+ Months

No short-term forecasted use


Create appropriate estate planning structures

Work with your estate-planning attorney to determine and create appropriate structures for yourself and your family to help hold, manage, protect and transfer your new wealth. These can include Wills, trusts, limited partnerships or LLCs, and other planning vehicles. If you are charitably inclined, you can also create a private foundation or donor-advised fund, which can fulfill not only family and personal goals, but also tax and financial ones, both before and after your liquidity event.

IMPORTANT INFORMATION This material is for information purposes only, and may inform you of certain products and services offered by J.P. Morgan’s wealth management businesses, part of JPMorgan Chase & Co. (“JPM”). The views and strategies described in the material may not be suitable for all investors and are subject to investment risks. Please read all Important Information.


GENERAL RISKS & CONSIDERATIONS

Any views, strategies or products discussed in this material may not be appropriate for all individuals and are subject to risks. Investors may get back less than they invested, and past performance is not a reliable indicator of future results. Asset allocation/diversification does not guarantee a profit or protect against loss. Nothing in this material should be relied upon in isolation for the purpose of making an investment decision. You are urged to consider carefully whether the services, products, asset classes (e.g. equities, fixed income, alternative investments, commodities, etc.) or strategies discussed are suitable to your needs. You must also consider the objectives, risks, charges, and expenses associated with an investment service, product or strategy prior to making an investment decision. For this and more complete information, including discussion of your goals/situation, contact your J.P. Morgan representative.

NON-RELIANCE. Certain information contained in this material is believed to be reliable; however, JPM does not represent or warrant its accuracy, reliability or completeness, or accept any liability for any loss or damage (whether direct or indirect) arising out of the use of all or any part of this material. No representation or warranty should be made with regard to any computations, graphs, tables, diagrams or commentary in this material, which are provided for illustration/reference purposes only. The views, opinions, estimates and strategies expressed in this material constitute our judgment based on current market conditions and are subject to change without notice. JPM assumes no duty to update any information in this material in the event that such information changes. Views, opinions, estimates and strategies expressed herein may differ from those expressed by other areas of JPM, views expressed for other purposes or in other contexts, and this material should not be regarded as a research report. Any projected results and risks are based solely on hypothetical examples cited, and actual results and risks will vary depending on specific circumstances. Forward-looking statements should not be considered as guarantees or predictions of future events.

Nothing in this document shall be construed as giving rise to any duty of care owed to, or advisory relationship with, you or any third party. Nothing in this document shall be regarded as an offer, solicitation, recommendation or advice (whether financial, accounting, legal, tax or other) given by J.P. Morgan and/or its officers or employees, irrespective of whether or not such communication was given at your request. J.P. Morgan and its affiliates and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transactions.



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